President Donald Trump wants to increase federal revenues and empower politicians like himself to invest that money, turning Uncle Sam into a venture capitalist in the name of national greatness.
It’s called a sovereign wealth fund, and it is the tool petrostates and other governments use to direct the investment of their budget surpluses.
Given Trump’s personality, penchant for grand gestures, and envy of less democratic regimes, it’s no surprise he would propose a U.S. sovereign wealth fund. The problems with such a fund, though, are fairly obvious.
For one thing, sovereign wealth funds typically require a budget surplus. The United States has nothing of the sort, nor will it in the foreseeable future.
Second, Trump and his DOGE czar, Elon Musk, claim to be rooting out “fraud and abuse” in the government. Few entities are more rife with fraud, abuse, and self-enrichment than a government-run investment fund. It’s not a stretch to say the purpose of sovereign wealth funds is cronyism.
Because these funds are a bit foreign to the Western mind, and because Trump has issued an executive order as a first step to creating a U.S. sovereign wealth fund, it’s worth a deeper dive into the whole idea.
The examples
Saudi Arabia, Qatar, and the United Arab Emirates have sovereign wealth funds, along with fellow petrostate Norway. The Communist Chinese government runs many similar funds. A couple dozen other countries have smaller sovereign wealth funds.
As the term suggests, the wealth in play belongs to the royal family or the national government. The rulers of these countries control the investments, whose stated purposes are twofold: to generate wealth for the government and to advance national interests.
For instance, Saudi Arabia’s $700 billion Public Investment Fund owns, through an intermediary, the company Neom, which promises to build The Line, a massive, kind-of-indoors, very long and narrow futuristic city in the desert. PIF, directed by Saudi Crown Prince Mohammed bin Salman, is also a major shareholder in Uber and Boeing.
Saudi’s PIF also owns LIV Golf, the main competitor with the PGA Tour. LIV is hosting a tournament at the Doral resort, which is owned by Trump.
Here, you see the Saudis’ tactical national-interest angle: Owning LIV allows the Saudi royals to endear themselves to the U.S. president by flattering him and funneling him both money and prestige. This upcoming tournament won’t be the first Trump family partnership with PIF: Right after Trump left office, his son-in-law and chief Middle East envoy Jared Kushner landed a $2 billion investment from PIF despite worries about his experience.
If this sounds ethically dubious, you’re catching on. Sovereign wealth funds are tools for insider enrichment. Malaysian insiders, for instance, sent billions of dollars from their sovereign wealth fund to shell companies that, in turn, purchased luxury amenities, including a superyacht, for the enjoyment of the insiders.
Angola’s sovereign wealth fund, through noncompetitive processes, hired investment managers who were connected to the ruling elites.
That is, sovereign wealth funds are, by definition, politicized, which means they are almost a guarantee of cronyism and abuse of power.
Trump’s proposal
Trump floated the idea of a U.S. sovereign wealth fund during the 2024 campaign. Two weeks into his second term, he started the ball rolling with a press conference and an executive order.
The president could not unilaterally create such a fund — only Congress could do that. Trump’s executive order stated, “It is in the interest of the American people that the Federal Government establish a sovereign wealth fund.”
Trump ordered the secretaries of treasury and commerce to develop and submit a plan for a sovereign wealth fund within 90 days.
“Such plan shall include recommendations for funding mechanisms, investment strategies, fund structure, and a governance model,” the executive order stated. “The plan shall also include an evaluation of the legal considerations for establishing and managing such a fund, including any need for legislation.”
How it would be funded
It’s no coincidence that most of the countries with sovereign wealth funds are petrostates. These are countries where the government owns the oil and natural gas reserves and profits off the drilling.
The U.S. government also brings in revenue from leasing out oil and gas rights to private companies. In 2019, for instance, the U.S. brought in more than $4 billion in revenues, mostly royalties, from oil and natural gas leases on federal lands.
Under current federal law, about half of that money goes back to the state where the drilling occurred, and typically 40% goes to fund the Bureau of Reclamation, which builds dams and reservoirs. The leftover, less than half a billion dollars, is deposited into the general fund.
Funding a sovereign wealth fund out of drilling leases, then, would inevitably increase the federal deficit. Congress would have to start funding the Bureau of Reclamation from the general fund or reduce oil and gas contributions to the general fund.
So, for a non-petrostate with no budget surplus to speak of, how could we possibly fund a sovereign wealth fund?
The White House argues that Trump’s policies — tariffs, tax hikes, and more drilling — will generate the revenue to fill this fund. His statement alongside the executive order explained:
“President Trump’s economic policies — including the pursuit of fair and balanced trade, national energy dominance, and tax and regulatory relief to spur robust economic growth — will result in greater wealth and revenue streams that a sovereign wealth fund can maximize the potential of.”
Trump also states: “The Federal government directly holds $5.7 trillion in assets.”
This last claim is true, but this pile of assets is not mostly liquid cash. The largest single category of federal assets is the $1.5 trillion loans receivable — mostly student debt that college students and graduates owe the federal government. You can’t invest money you don’t have yet.
Another $1.2 trillion is the value of all federal land, buildings, furniture, and equipment.
The federal government has only about $1 trillion in cash, but that’s less than half the size of the $2 trillion annual budget deficit.
In other words, Uncle Sam can’t even pay the bills, and so he has no business playing the stock market.
Where would we invest?
The Trump White House stated the fund’s investments would be for “the sole benefit of American citizens.” This sounds like Trump wouldn’t want to invest in foreign companies.
But Trump also says the fund would “promote United States economic and strategic leadership internationally.” That means Trump would try to use the investments to exert influence overseas.
Finally, Trump stated the fund would “invest in great national endeavors for the benefit of all of the American people.”
Howard Lutnick, Trump’s nominee for commerce secretary, suggested that the U.S. sovereign wealth fund would involve investing in companies the government is already doing business with — like how Saudi Arabia’s PIF invested in Boeing while buying dozens of Boeing jets for its state-owned airlines.
“If we are going to buy 2 billion COVID vaccines,” Lutnick said at the White House, “maybe we should have some warrants and some equity in these companies.”
Judging by Trump’s other plans, he might try to use the fund to buy Greenland or build a resort in the Gaza Strip.
Cronyism and corruption
From Trump’s perspective, a main virtue of a sovereign wealth fund would be that the president would be in charge of it and could invest in projects or companies without explicit congressional approval.
In other countries, that executive control has helped lead to cronyism and self-dealing. There’s no reason to believe the U.S. would be exempt.
Trump has a long record of using his power to enrich himself. His campaign regularly spent money at his hotels, and he used the bully pulpit to attack Nordstrom for dropping his daughter’s shoe line.
It is inevitable that Trump and his successors in both parties would use a sovereign wealth fund to enrich themselves, reward friends, and punish enemies.
Trump is certainly not above wielding power that way — consider how he has punished the Associated Press for refusing to change the Gulf of Mexico to the “Gulf of America” in its style guide. He would be just as likely to make sovereign-wealth-fund investments dependent on being nice to Trump.
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Democrats would be certain to use the sovereign wealth fund to push corporations back toward woke policies on gender and race and force them to hire union labor.
Setting up a sovereign wealth fund is creating a machine for cronyism. It’s pretty revealing that this is a priority for Trump.